The success of an organisation is directly dependent on its interaction with the external environment. Organisations have no or little control over those external factors. Therefore, it is significant for the company to identify them and devise its decision-making process and policy accordingly. In this report, a critical evaluation of the external factors on firms will be done. A discussion on ways of resolving the challenges faced by the firm will be done. Lastly, these factors and their effects on decision-making will be elaborated.
As discussed in the part-A assessment that there are several factors to which an organisation is exposed to. These include political, economic, social, technological, legal, and environment. The effects of each factor is different and they have different impact on organisation’s success and failure. Starting with the political factor, it comprises factors such as government stability, taxation system, legislation, FDI policies, etc (Quizlett, 2018). Political factors can impact business organisation as they introduce the risk factors that can cause huge losses to the organisation and impact the bottom line of the company. Conversely, these can also have a positive influence on the organisation. Nations are making their business environment trade-friendly. The socio-economic zones are being developed in order to promote the MNCs to set their plants in the country as lower taxes. There are not only the direct impacts of political factors but the indirect impact also(Bryson, 2018). These includes political decisions that affect the socio-cultural environment of the country and economic as well. Therefore, it is important for the government and the organisation to establish the stable business environment.
In the economic factors, various aspects are considered that are quintessential for the business organisation as they directly impact the profit and organisation’s stability and competitive position in the market. Economic factors can be classified as the taxation rate, unemployment, inflation factors, disposal income, etc. Organisations that sell medium range services and goods are less likely to be affected by the economic factors. Economic factors like market collapse can badly hurt the revenue of the organisations irrespective of scale. As revenues are dependent on the organisation’ ability to hire skilled and unskilled labour at cheaper rate and quality it is offering to the customers. The major economic factors that are considered to be very crucial for the business are demand and supply(Gilpin, 2018).If the demand of a product is low and organisation fails to evaluate the actual demand, then it might be facing huge loss. The demand is dependent on the disposable income of people in a country that determine the purchasing power of the consumer.
The social factors consist of usually public relation of an organisation. In today’s day and age, organisational reputation and market value hugely dependent on the public relations. It is dependent on number of factors like health consciousness, market awareness and presence, criticism. People around the world are now moving towards health consciousness meaning they are accepting those products that provides health benefits or have high market reputation. In addition, a widespread criticism can impact the profit of the business. In addition to this, different social class have demands that are unique. For instance, the older generations may not be tech-savvy. Therefore, they would demand the products that are manually operated or easy-to-learn. On the other hand, the modern generation prefers digital technology and they prefer to shop through online platform. Therefore, organisations are now taking both online and offline routes of retailing. The organisations should understand these changing social trends in order to sustain their position in the market.
Talking about the technological factors, these factors include organisations’ ability to use innovative methods and ways. Technology is nowadays a necessary element of conducting and operating a business. From client interactions to product development and their delivery, are all dependent on technology. The technological environment has developed and transformed the business functions. Advancements in informational technology have increased the customer interactions. Organisations are now able to provide improvised services to the customers that results in increased customer base and revenue of the organisation. In addition to this, organisations are now heavily dependent on the digital marketing strategies. Technology has revolutionised the R&D in the organisation.
In the legal factors, the legal obligations include labour laws, environment law, consumer law, employment law, fraud law, legal rules and policy framework. These laws obligate the organisations to dedicate huge amount of resources into fulfilling the requirement of these laws and legal obligation. This eats up the revenue of the organisation. For instance, in order to meet the health and safety requirements, organisation needs to carry out quality check for equipment and instruments. In addition to this, employees are needed to be trained for the safety. This requires some amount of funds that reduces the profits. However, on the long run, these legal obligations are beneficial for the company as they help in discarding the uncertainties hindering the business operations (Dobbs, 2014).
Talking about the environmental factors, it covers wide aspect of the business as every business operation can be relate to environment. Companies can control the environmental impact by upgrading their operation efficiency and making use of eco-friendly measure. National and international agencies are putting tremendous pressure on firms to reduce their carbon foot prints. For that purpose, organisations are obligated to follow the legislation and standards set by them. This might affect the revenue and market position of the company. However, eco-friendliness improves the organisation’s image in the global market and that would further add into organisation’s revenue (Indiatsy, et.al, 2014).
In any organization, external factors should be resolve with landscape’s full understanding and diligence and all the factors should keep in mind. Here are some following framework and skills to manage these factors in firms-
With technology, the firm can analyze and monitor the growth factors for the firm and it can enhance the rivalry among all the firms in the marketplace (Benn, et.al., 2014).
According to Aithal, (2016), organisation that analyses the aforementioned PESTLE factors systematically and regularly achieve higher success and competitive advantage. Organisations are needed to analyse the external and internal environment in which it is operating. Various tools are available with the organisation for doing that. For instance, SWOT can be used for internal environment factors, whereas the other can be analysed with the help of the PESTLE tool. PESTLE is important before carrying out the strategic-planning (Rastogi, & Trivedi, 2016). Since, organisations have no or little control over those external factors. Therefore, it is significant for the company to identify them and devise its decision-making process and policy accordingly. Considering these factors are important for strategic management, preparing market strategies, and HR solutions. As it was earlier discussed that organisations cannot control them, therefore there is a need for understanding these environment. Conducting a strategic analysis of macro-environment is crucial as it entails the organisation to detect and understand the long-term market trends. Organisation would be able to use these factors in profit-making by orientating the product as per the market needs. These factors and their analysis are useful in marketing planning and business planning. These can also be very much useful in case of identifying the threats and opportunities in the business. Since the market is ever-changing, macro-environment analysis can be very much helpful in identifying the business growth potential areas. It facilitates an understanding and insight of the business environment.
Here, it has been noticed that organisations are operating in uncertain markets and environment. These may be of two types: internal and external. Organisations are needed to analyse the external and internal environment in which it is operating. Various tools are available with the organisation for doing it. In this report, a critical evaluation of the external factors on firms will be done. A discussion on ways of resolving the challenges faced by the firm will be done. Lastly, these factors and their effects on decision-making will be elaborated. It was figured out that business should use the emerging tools of technology to avoid the technological factors within an organization. It should develop strong procedures and policies such as vacations, sick time, benefits, etc. Moreover, it should follow the rules and regulations of government.
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